NAIROBI, Kenya (AP) - When Ademola Adesina founded a startup in 2015 to offer solar and battery subscription packages to individuals and businesses in Nigeria, it was a lot harder to raise money than it is today.
Climate tech was new to Africa, the continent was a young destination for venture capital money, there were fewer financiers to approach and less money available, he said.
It took him a year of "running around and searching" his networks to raise his first amount - just under $1 million - from venture capital firms and other sources. "Everything was a learning experience," he said.
But the ecosystem has changed since then, and Adesina's Rensource Energy has raised about $30 million over the years, mostly from venture capital firms.
Funding for private sector climate tech startups in Africa is growing, with companies raising more than $3.4 billion since 2019. But there is still a long way to go: the continent needs $277 billion annually to meet its 2030 climate goals.
Experts say that to unlock financing and fill this gap, African countries must address risks such as currency instability that they say is reducing investor appetite, while investors must expand their area of interest to more climate sectors such as flood protection, disaster management and heat management , and use different financing methods.
Yet the investment numbers for the climate tech sector - which includes companies in renewable energy, carbon removal, land restoration and water and waste management - are compelling: last year, climate tech startups on the continent raised $1.04 billion, up of 9% from the year before and triple what they raised in 2019, according to the funding database Africa: The Big Deal. That was despite a decline in the amount of money raised by all startups overall on the continent last year.
That matters because climate tech requires experimentation, and venture capital firms that provide money to emerging companies play a vital role in giving climate tech startups risk capital, Adesina said. "Climate-wise, many things are uncertain," he said.
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The money raised by climate tech startups last year was over a third of all funds raised by startups in Africa in 2023, putting climate tech second only to fintech, a more mature sector.
Venture capital is typically given to companies with significant risks but great long-term growth potential. Startups use it to expand into new markets and get products and services to market.
Venture capitalists "can take risks that other people can't take because our business model is designed to have failures," says Brian Odhiambo, a Lagos-based partner at Novastar Ventures, an Africa-focused investor. "Not everything has to work out. But some will, and those who do will succeed in a huge way."
Such was the case for Adetayo Bamiduro, co-founder of Metro Africa
Adetayo said venture capitalists "play a catalytic role that is extremely essential."
"We all know that investments need to be made to truly decarbonize our economies. And it is not a trivial investment," he said.
The funds can also bridge the gap between traditional and non-traditional sectors, says Kidus Asfaw, co-founder and CEO of Kubik, a startup that turns hard-to-recycle plastic waste into sustainable, low-carbon building material. His company, which operates in Kenya and Ethiopia, has raised about $4.6 million since launching in 2021.
He mentions waste management and construction as examples of traditional sectors that can connect with startups like his.
"There is so much innovation in these spaces that can transform them over time," he said. "VCs are accelerating the journey to transform them."
In addition to venture capital, other investments by private equity firms, syndicates, venture capitalists, grant providers and other financial institutions are actively financing climate initiatives on the continent.
But private sector financing generally lags far behind that of public financing, which also includes funds from governments, multilateral organizations and development finance institutions.
According to a report by the Climate Policy Initiative, private sector financing accounted for just 14% of all African climate financing between 2019 and 2020, far lower than in regions such as East Asia and the Pacific (39%), and in Latin America and the Caribbean. at 49%.
Africa's low contribution is attributed to investors putting money into areas they are more comfortable with, such as renewable energy technology, while less money comes in for more diverse initiatives, says Sandy Okoth, a green finance capital markets specialist at FSD Africa. , one of the clients of the CPI research.
"The private sector believes that this (renewable energy technology) is a more mature space," he said. "They understand the financing models."
Climate change adaptation technology, on the other hand, is "more complex," he said.
One startup working on renewable energy is Johannesburg-based Wetility, which last year secured $48 million in funding - mainly from private equity - to expand its operations.
The startup provides solar panels for homes and businesses and a digital management system that allows users to remotely manage energy consumption, as it seeks to solve the problems of energy access and reliability in southern Africa.
"Private sector financing in the African environment is still quite low," says founder and CEO Vincent Maposa. "But there is visible growth. And I believe you will see those shifts over the next decade."
Investors are also beginning to understand the economic benefits of climate change adaptation and solutions as they deliver returns on investments, says Hetal Patel, Nairobi-based investment director at Mercy Corps Ventures, an early-stage venture capital fund focused on startups building solutions for climate adaptation and financial resilience.
"We are starting to build a very strong business case for investors in adaptation and getting private capital flows in," he said.
Maëlis Carraro, managing partner at Catalyst Fund, a Nairobi-based venture capital fund and accelerator that finances climate adaptation solutions, urged more diverse financing, such as financing that combines private and public sector financing. The role of public financing, she said, should be to reduce risks for the private sector and attract more private sector capital to finance climate initiatives.
"We don't go far enough with public funding alone," she said. "We need the private sector and the public sector to work together to unlock more funding. And above all, look beyond just a few industries where innovation is writ large."
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